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Wednesday, 7 March 2012

Credit crisis forces Dutch companies to change their Human Resources policy, with grave consequences for especially older and low-educated people.

Today, the Dutch institution responsible for benefit payments UWV presented its yearly report on the Dutch labor market: Vacancies in The Netherlands 2011. This report contained some very remarkable results, concerning changes on the Dutch labor market. While you could state that most changes are a consequence of the second leg of the credit crisis that is currently hitting The Netherlands, some changes will probably have a structural character.

As I consider this report a must-read, I will show a large part of the main conclusions, combined with my comments. The integral report can be found behind the link. You can use Google Translate to translate it from Dutch to English, or any other language.

Demand for personnel decreased also in 2011, but…

There is a decrease in the number of fulfilled (-6%), open (-4%) and especially recently emerged vacancies (-11%). The decrease in the number of jobs is less substantial than in 2010, but a tell-tale signal of the economic situation: seemingly promising in 2011Q1, but worrisome in 2011Q4

for 2012 more companies expect a growing than a contracting staff

More than half of the companies expect their staff to remain equal in 2012 (54%). However, much more companies (23% vs 9%) expect a growing than a shrinking staff. Especially business services companies expect to expand their staff (30%).

I consider the latter to be misplaced optimism; all signs seem to point out that the Dutch economy is seriously contracting and I expect this to endure well into 2013 or even 2014. This will have its effect on especially business services, is my prediction.

Decreasing number of vacancies in main part of labor market, but shortage in some industries

The number of fulfilled vacancies contracted sharply in the agricultural industry, the food, beverage and hospitality industry and business services. However, the number of open, fulfilled and hard-to-fulfill jobs soared in the manufacturing industry, building & construction industry, the trade industry and miscellaneous services. This points to personnel shortage in these industries.

Especially the increase in building & construction (B&C) is surprising; since 2009 this industry suffered strongly from the credit crisis, as the investments in Residential and Commercial Real Estate have been dropping sharply. However, in the first half of 2011 there had been growth in B&C for the first time since 2008.

I don’t believe one word from the idea that there is room for growth in the B&C industry and I consider this therefore a very temporary revival. There is no room and no demand for new CRE and the Dutch housing market is still very much locked up. There is the chance of a snowball in hell that B&C will show real growth in the coming years, unless central and local governments decide to choose for the Keynesian roadmap.  For this industry it would be a grave mistake, as there is huge overcapacity already.

Shift from fixed contracts to long-term temporary contracts with a condition of access to a fixed contract.

Of the people that were hired in 2011, virtually nobody gets immediately a fixed contract anymore (less than 3%). In 2011, this number dropped to 2,000 from 83,000 in 2010.

Instead, long-term temporary contracts are offered with a condition of access to a fixed contract and temporary contracts with a duration of more than one year. Companies don’t want to take any risk in their human resource policy and want to check out their new personnel and the economic developments first.

For me this was the most shocking result of the UWV investigation. This development speaks volumes on a number of circumstances in The Netherlands:
  • Dutch employers don’t have any confidence in the economy and don’t want to get stuck with excess personnel. It must be easy to lay off people quickly and without any hustle and bustle
  • The Dutch labor and dismissal legislation is too rigid and too old for the current demands on the labor market. Therefore companies don’t want to take any risk and hire everybody on a temp contract.
  • The condition of access to a fixed contract is often nothing more than an empty promise from companies that want to bind their personnel without being bound to them.
I’m absolutely not against the labor market in The Netherlands becoming less rigid and overregulated. The disadvantage is, however, that the whole Dutch society is still built around fixed contracts.

People that don’t have one (especially youngsters), could be in for a rough time when they want to acquire a rental or private house. Landlords and banks could very well refuse them housing, without a fixed labor contract. And even a simple loan for a car or for house-maintenance could be refused, due to the uncertainty of future labor.

This would lead to further stagnation in the Dutch housing market. It would also lead to the formation of a small, diminishing elite with a fixed contract, while a growing group of people have only temporary contracts and no possibilities to build up a certain financial future or even their pension rights, as a matter of fact. This is potentially a very dangerous development for societal stability in society and I expect it to increase in the coming years.

Higher educational demands and expert knowledge in greater demand.

There is a further shift in the labor market towards jobs where at least intermediate or higher vocational education is demanded. For more than 74% of the fulfilled jobs in 2011, at least intermediate vocational education had been demanded. Also relevant expert knowledge was in higher demand.

This is a very logical development, as many labor-intensive and low-capital jobs are offshored to Eastern-Europe or Asia these days. These jobs probably won’t  return to The Netherlands anymore, which means that the people that did these jobs before, will get out of work and stay out of work. This predicts a very hard future for people with only low-level education.

Employees accept jobs below their educational level

Due to the decreasing employment, prospective employees have to settle more often for a job well below their educational level. This is called over-education and it happens most at jobs where a basic educational level is required and to a lesser degree in jobs that require an intermediate educational level. Undereducation is very extraordinary these days.

You could call this phenomena a ‘squeeze-out’: people with the right education for a job get squeezed out by people with better education, as companies probably consider these people more intelligent and more suited for the job. This could be a grave mistake, as it has bad consequences for the future of people with the lowest educations. 

Besides that, people that do a job well under their educational level, get bored with it more quickly than people that have the right education. The former try to promote themselves away from their job, which might not be in the interest of the company.

Longlasting drop in the number of vacancies does not mean an automatic increase in the number of job-seekers.

In spite of the dropping number of fulfilled vacancies, the number of job-seekers decreased. It’s not clear whether this is caused by an improving labor market or by people withdrawing from the labor market.

My take: because of the latter.

Low job prospects for older and / or low-educated people

Age and education decide mostly the chance for finding a job. A 'high' age and (to a lesser degree) a low education are the most important obstacles for non-working job seekers in the process of finding a job.

Sad, but true. Although many older or lower-educated people are very much suited for a certain job, most companies choose for younger and higher-educated people. Not only because younger workers earn less money (this is for instance often not true in case of high-potentials), but because older workers have the stigma of being ill more often and being less motivated than younger workers. Older workers have the (often unjust) reputation of taking-it-easy in their job.


Personally I am very bearish on the Dutch economy in 2012-2014. Regular readers of my blog will find this hardly surprising. Therefore I’m afraid that the Dutch labor market will become even harder for people that are already at the wrong side of the spectrum.

And a job with a fixed contract might become ‘something of the past’ very soon. Whether you like it or not: it’s reality and it won’t change soon.

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